Category Archives: Accounting & Finance

Earnings management in the post‐IPO years and their impact on the long‐run stock performance of foreign versus domestic IPO firms

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Abstract

Using a matched sample of foreign and domestic IPO firm listings on US stock exchanges, we find that foreign IPO firms are associated with significantly higher upward earnings management via discretionary (abnormal) long-term accruals in the first 2 years post-IPO year, and lower long-run stock returns in the 3 years post-listing, compared to US domestic IPO firms. Our results also show that the lower long-run stock returns of foreign IPO firms are associated with their higher discretionary long-term accruals. We provide further evidence that institutional investors can mitigate lower long-run stock returns of foreign IPO firms compared with US domestic IPO firms.

The spillover effects of managers’ evasiveness: Evidence from earnings communication conferences

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Abstract

We investigate how managers' evasiveness affects peer firms' stock returns. Managers' evasiveness is measured by the degree of managers' irrelevant answers and non-answers during earnings communication conferences. Our results show that peer firms' investors react negatively to managers' evasiveness. Moreover, we find that the spillover effects are stronger for peer firms with lower information transparency, and the leading firms with a higher market power or a higher leverage ratio.

Actions speak louder than words: Can credible green commitment facilitate bank loan financing? Evidence from China

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Abstract

Our study investigates whether credible commitment to corporate green behaviours influences corporate finance. Specifically, using the unique setting Green Manufacturing (GM) program in China, we examine whether and how green manufacturing certification (GMC) endorsed by the government could lead to an increase in firms' bank loan financing. We find that GMC increases bank loan financing, mainly through alleviation of banks' concerns of information risk and default risk potentially arising from environmental risk. Heterogeneity analyses show that the positive effect of GMC on bank loan financing is more pronounced for non-state-owned enterprises, firms in polluting industries, in less eco-friendly regions, and in Green Finance Pilot Program regions. Our findings suggest that the government plays an important role in discerning and endorsing corporate green behaviours, and thus directing banks' financial resource allocation decisions.

Revisiting the concept of the public interest in accounting: A stakeholder analysis

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Abstract

This study contributes to the discussion on the meaning and operation of the public interest. The all-inclusive perspective in defining the public interest adopted by IFAC, was criticised by stakeholders, predominantly professional bodies, for being broad and impractical. IFAC responded by proposing a process-oriented approach to simplify the definition and assessment of public interest policies and actions. The limitations in understanding the public interest from both conceptual and practical perspectives have not been addressed in a significant way, suggesting there is room for further guidance on the meaning of the public interest and how to implement it.

A balancing act between accuracy and timeliness: Evidence from analyst forecasts in China

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Abstract

This paper investigates the impact of teamwork on analysts' ability to balance accuracy and timeliness. Surprisingly, team analysts demonstrate a lower ability compared to individual analysts. This trade-off ability is even worse in diverse teams. Further, we find that Confucianism negatively affects this ability. However, this ability significantly improves when star analysts serve on the analyst team, or when analyst team members come from the province where the covered firm is headquartered, or when analyst team members graduate from the same college. Overall, these findings suggest that it is crucial to consider the two performance dimensions simultaneously.

The impact of the organisational structure of tax authorities on tax and accounting fraud

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Abstract

Using tax centralisation reform enacted to eliminate decentralised tax authorities, we find firms have lower probabilities of tax and accounting fraud since its implementation. Our analysis shows the negative impact of the reform on tax and accounting fraud becomes stronger among firms with weaker tax enforcement, indicating that the reform plays a corporate governance role through strengthening tax enforcement. Additionally, we find this effect is stronger when firm-level governance is weaker and stronger in firms with higher agency costs. Finally, the reform effect is weaker among non-state-owned enterprises with political connections to the central government.

When Buffett meets Bollinger: An integrated approach to fundamental and technical analysis

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Abstract

Motivated by the implication of return extrapolation models that a joint consideration of past price changes and firm fundamentals could efficiently identify stock mispricing, we propose an integrated approach that combines fundamental and technical information. This integrated approach generates substantial economic gains, which are comparable to those of strategies double-sorted on characteristics related to high turnover and trading costs and state-of-the-art machine learning strategies in existing studies. The performance net of transaction costs is still attractive. Simple transaction cost mitigation approaches could further enhance the performance of the integrated approach by reducing portfolio turnover. Consistent with behavioural models, limits to arbitrage and information asymmetry play a significant role in explaining the super performance of this integrated approach.

Media abnormal tone and cross section of stock returns: Evidence from China

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Abstract

This paper introduces an innovative methodology for extracting information from textual data to explain cross-sectional stock returns, addressing limitations of conventional media tone measures. We find firms exhibiting higher media abnormal tone yield lower future returns in the Chinese market, even when controlling for common risk factors. This effect is more pronounced among firms with low investment, low profitability, and high short-term reversal. We also find the negative premium generated by media abnormal tone results from mispricing, highlighting investor overreaction despite media's role in disseminating concurrent firm information. Furthermore, the tendency for media outlets to follow suit exacerbates investor overreaction.

The effect of corporate Twitter, Instagram and YouTube activity on investor attention and market liquidity

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Abstract

Using daily-level data on corporate social media activity, we show that investor attention generally increases when firms post on Twitter, Instagram and YouTube and that the effect is stronger during earnings announcement periods. We find that stock market liquidity improves when firms post on social media, but the effects are the most consistent for Twitter. Finally, we document that when firms miss earnings, they post more on social media if the magnitude of the bad news is small but remain silent when the magnitude is large. This strategic behaviour is prevalent across all three social media platforms.

Corporate non‐financial misconduct and accounting conservatism

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Abstract

This study shows that shareholders demand a higher level of conservatism when the firm commits non-financial misconduct. This positive relationship between corporate non-financial misconduct and accounting conservatism is more pronounced for firms with higher information asymmetry, worse financial conditions and greater monitoring by shareholders. Further analyses reveal that corporate non-financial misconduct is associated with less efficient managerial control over operations, lower employee satisfaction, worse performance and higher information uncertainties in the future. These results are robust to alternative measures, endogeneity concerns and controls for the potential influence arising from financial misconduct and internal control weakness.